Despite Volatile Markets, Fed Seems Mostly Undeterred from Path to Higher Rates

During the Federal Reserve Bank of Kansas City’s annual economic symposium in Jackson Hole, Wyoming, policy makers indicated that stock-market volatility and China’s troubles haven’t significantly swayed them off the path toward their first increase in interest rates since 2006.

The U.S. job market continues to improve and domestic U.S. economic output is expanding at a steady, modest pace. These are two big factors in the Fed’s justification for beginning to raise the federal funds rate from its “near zero” position, a stance held since 2008.
Inflation might remain low for longer because of falling oil prices and a strong dollar. But that’s not enough to derail the plan for a normalization of rates. Policy makers anticipate that U.S. consumer-price inflation will start heading toward the Fed’s 2 percent.
The Fed has said it will raise rates when it is reasonably confident the inflation rate will rise again to 2 percent. Fed officials, however, will keep a close watch on markets and China, and so too will companies looking to import, be it with help from or otherwise.
“There is good reason to believe that inflation will move higher as the forces holding inflation down-oil prices and import prices, particularly-dissipate further,” said Fed Vice Chairman Stanley Fischer (pictured above) in comments delivered to the conference, which ended Saturday.
Fischer’s comments suggested he believed the economy is closer to that point, but he avoided any indications as to whether the Fed will act at its next meeting in September.
However, Fischer made it clear that global economic factors play a role in their decision making.
Fischer: “We follow economic developments in the rest of the world as well as the United States in reaching our interest rate decisions. At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual.”

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